The prospects for the global economy are improving, but remain fragile, especially in Europe, according to a United Nations-backed report released today. According to the 2012 World Economic Outlook, published by the International Monetary Fund (IMF), unemployment in many advanced economies will stay high.
“Although action by policymakers in Europe and elsewhere has helped to reduce vulnerabilities, risks of a renewed upsurge of the crisis in Europe continue to loom large, along with geopolitical uncertainties affecting the oil market,” stated the Fund.
Global growth is forecasted to drop from almost 4 per cent in 2011 to about 3.5 per cent this year, picking up to 4.1 per cent next year, according to the report, which comes ahead of the Spring Meetings of the IMF and the World Bank in Washington DC.
The Fund foresees a “mild contraction” in the euro area, where fears about high sovereign debt and fiscal consolidation have taken a toll, although Germany and France might see positive growth.
Japan, trying to stand on its feet from last year’s destructive earthquake and tsunami, will see a recovery of 2 per cent, according to the forecast.
Growth in Asia overall will average 6 per cent, with China slowing to 8.2 per cent and India to 6.9 per cent.
Meanwhile, in Europe, real gross domestic product (GDP) in the euro area is projected to contract in the first half of 2012 but then start recovering, except in Spain, Italy, Greece, and Portugal where recovery will only begin in 2013.
Growth in the United Kingdom, whose financial sector was hit hard by the global crisis, will be weak in early 2012, the report said. It also noted that overall growth in Russia and the Commonwealth of Independent States will fall to 4.2 per cent, while growth in Latin America and the Caribbean is projected to moderate to just over 3 per cent this year before recovering above 4 per cent in 2013.
Overall growth for the Middle East and North Africa is forecast at 4.2 per cent this year, with oil producers buoyed by continued high oil prices. At the same time, growth in the region’s oil importers will be constrained by strong oil prices, weak tourism due to the social unrest in the region, and lower trade and remittance flows reflecting the ongoing problems in Europe.
The report stressed that governments should strengthen policies to solidify the weak recovery and contain potential risks that can weigh on consumer and investor confidence.
Advanced economies should implement medium-term budgetary savings, but not in a way that could undermine the recovery, the report said. In developing countries and emerging markets, policies should be geared toward ensuring a soft landing for economies that have seen sustained, very strong credit growth.